TAF-10-08-00004-P Supplemental Schedule for Distributor of Tobacco Products

3/5/08 N.Y. St. Reg. TAF-10-08-00004-P

NEW YORK STATE REGISTER

VOLUME XXX, ISSUE 10

March 05, 2008

RULE MAKING ACTIVITIES

DEPARTMENT OF TAXATION AND FINANCE

PROPOSED RULE MAKING

NO HEARING(S) SCHEDULED

 

I.D No. TAF-10-08-00004-P

Supplemental Schedule for Distributor of Tobacco Products

PURSUANT TO THE PROVISIONS OF THE State Administrative Procedure Act, NOTICE is hereby given of the following proposed rule:

Proposed action:

Addition of section 89.4 to Title 20 NYCRR.

Statutory authority:

Tax Law, sections 171, subdivisions First and Fourteenth and 475 (not subdivided); Public Health Law, section 1399-oo, subdivision (10)

Subject:

Supplemental schedule for distributors of tobacco products to account for roll-your-own cigarette tobacco in New York State.

Purpose:

To codify in regulation reporting requirements for distributors of roll-your-own cigarette tobacco.

Text of proposed rule:

Section 1. A new section 89.4 is added to such regulations, to read as follows:

Section 89.4 Supplemental schedule for distributors of tobacco products that import, cause to be imported, or manufacture roll-your-own tobacco. (Tax Law, sections 473-a, 475; Public Health Law, art. 13-G, sections 1399-oo and 1399-pp).

(a) The Tobacco Escrow Funds Act (Public Health Law, art. 13-G), as amended by Chapter 272 of the Laws of 2006, requires tobacco product manufacturers that do not participate in the Tobacco Master Settlement Agreement to make annual escrow payments based on units sold as measured, in part, by excise taxes on roll-your-own tobacco. Roll-your-own tobacco is any tobacco which, because of its appearance, type, packaging, or labeling is suitable for use and likely to be offered to, or purchased by, consumers as tobacco for making cigarettes. In order to provide information on roll-your-own tobacco, as part of the tobacco products tax return required by section 473-a of the Tax Law, those distributors of tobacco products that import, cause to be imported, or manufacture roll-your-own tobacco must complete and file a schedule, as prescribed by the department, to account for the quantity of roll-your-own tobacco imported or caused to be imported into New York State, or manufactured in New York State. Such schedule must contain the following information:

(1) a listing of each supplier of roll-your-own tobacco that the distributor imported or caused to be imported into New York State;

(2) for each supplier listed, a listing of all the brands of roll-your-own tobacco imported or caused to be imported from such supplier and the quantity in pounds and ounces of each brand of roll-your-own tobacco imported or caused to be imported by the distributor;

(3) for each brand of roll-your-own tobacco listed for each supplier, the name of the manufacturer of such brand;

(4) if a distributor manufactures roll-your-own tobacco, a listing of all the brands of roll-your-own tobacco product the distributor manufactured in New York State along with the quantity of each brand; and

(5) any other information as may be required by the department.

(b) The distributor must maintain complete and accurate records to support the information reported on the schedule required by subdivision (a) of this section.

(c) The failure of a tobacco products distributor to comply with the provisions of this section by not furnishing the schedule required by this section, or by not furnishing complete and accurate information as required by such schedule, constitutes grounds for cancellation of the appointment as a distributor or suspension or revocation of a license under article 20 of the Tax Law.

Text of proposed rule and any required statements and analyses may be obtained from:

John W. Bartlett, Tax Regulations Specialist 4, Department of Taxation and Finance, Bldg. 9, State Campus, Albany, NY 12227, [phone], e-mail: [e-mail]

Data, views or arguments may be submitted to:

William Ryan, Director, Department of Taxation and Finance, Bldg. 9, State Campus, Albany, NY 12227, [phone], e-mail: [e-mail]

Public comment will be received until:

45 days after publication of this notice.

Regulatory Impact Statement

1. Statutory authority: Tax Law, section 171, subdivisions First and Fourteenth, and section 475 (not subdivided); and Public Health Law, section 1399-oo, subdivision (10). Section 171, subdivision First of the Tax Law provides for the Commissioner of Taxation and Finance to make reasonable rules and regulations, which are consistent with the law, that may be necessary for the exercise of the Commissioner's powers and the performance of the Commissioner's duties under the Tax Law. Section 171, subdivision Fourteenth of the Tax Law provides for the Commissioner to perform the other powers and duties conferred upon it by law. Section 475 (not subdivided) of the Tax Law provides that the Commissioner may require tax returns relating to the tax on cigarettes and tobacco products to be filed at such times and containing such information as it may prescribe. Section 1399-oo, subdivision (10) of the Public Health Law provides that the Commissioner of Taxation and Finance shall promulgate regulations as are necessary to ascertain the amount of state excise tax paid on the cigarettes, including roll-your-own tobacco, of each tobacco manufacturer selling such tobacco in the state.

2. Legislative objectives: This rule is being proposed pursuant to such authority and in accordance with the legislative objectives that the Commissioner equitably administers the provisions of the Tax Law and other applicable provisions of law under his jurisdiction to preserve State revenue. The rule is an exercise of the Commissioner's authority to require returns to contain the information as it may prescribe and to prescribe a rule that, consistent with the Tax Law, will enable the Department to assist with the enforcement of the Master Settlement Agreement (MSA), as described below in Section 3 of this statement.

3. Needs and benefits: The Public Health Law, as it relates to the enforcement of the tobacco Master Settlement Agreement (MSA), was amended by Chapter 272 of the Laws of 2006 to require that non-participating manufacturers, as defined in the MSA, include units of roll-your-own cigarette tobacco imported or caused to be imported into New York State, or manufactured in New York State, in determining their annual escrow payments. Beginning with the return for January 2007, distributors importing, causing to be imported, or manufacturing roll-your-own cigarette tobacco are required to complete and attach a supplemental schedule to their monthly return to account for roll-your-own cigarette tobacco imported or caused to be imported into New York State, or manufactured in New York State. Public Health Law (PHL) § 1399-oo(10), which defines “unit sold,” requires that the Tax Department provide certain information to the New York State Attorney General necessary for the administration and enforcement of the Tobacco Escrow Funds Act. For standard packs of cigarettes, this information is collected and reported by cigarette stamping agents on an attachment to their monthly cigarette tax reports pursuant to 20 NYCRR 75.1(f). Roll-your-own cigarette tobacco is taxable as a tobacco product under section 471-b of the Tax Law. New section 89.4 codifies in regulation similar reporting requirements imposed based on the amendments to the provisions of the Tobacco Escrow Funds Act as it applies to roll-your-own tobacco and mirrors 20 NYCRR 75.1(f). This amendment codifies in regulation the new filing requirements needed to assist in the enforcement of the Public Health Law.

4. Costs:

(a) Costs to regulated persons: The regulated parties affected by this rule are approximately 65 distributors of tobacco products that are currently filing form MT-203-ATT each month, reporting purchases of roll-your-own cigarette tobacco. There is no tax liability impact on these regulated parties for the implementation of and continuing compliance with the rule. There are administrative costs associated with the filing of the supplemental schedule. This schedule is currently required to be filed by distributors of roll-your-own cigarette tobacco importing or causing to be imported into New York State, or manufacturing roll-your-own cigarette tobacco in New York State, as explained above in Section 3 of this statement. The rule merely codifies this requirement. It is estimated that it takes an affected distributor of tobacco products that imports, causes to be imported, or manufactures roll-your-own cigarette tobacco thirty minutes to learn about the form, one hour for recordkeeping, and one hour and thirty minutes for preparing the form for a total of three hours. Assuming an hourly rate of $17 an hour (equivalent with a clerical New York State position), the average cost for an affected distributor of tobacco products to complete the form as part of its monthly tobacco products tax return is $51 a month. After the first filing, the costs of learning about the form could be reduced to zero for these distributors, resulting in compliance costs to each affected distributor of $42.50 a month for each subsequent month. The time estimates are from the Department's Transaction and Transfer Tax Bureau of its Audit Division and are based on estimates of time to complete similar forms.

(b) Costs to the State and its local governments including this agency: This rule will have no cost in terms of revenue impact on New York State or its local governments. It is estimated that the implementation and continued administration of this rule will have no fiscal impact on the Department of Taxation and Finance. Distributors of tobacco products that import, cause to be imported, or manufacture roll-your-own cigarette tobacco were notified of the new filing requirement in December 2006, providing that beginning with the return for January 2007, (due February 20, 2007) distributors must complete and attach Form MT-203-ATT, Information on Roll-Your-Own Cigarette Tobacco Manufactured or Imported by a Distributor, to their monthly return, (Form MT-203, Distributor of Tobacco Products Tax Return). Form MT-203-ATT is mailed to all distributors each month along with Form MT-203.

(c) Information and methodology: These conclusions are based upon the information and methodology discussed above and an analysis of the rule from the Department's Taxpayer Guidance Division, Office of Tax Policy Analysis, Transaction and Transfer Tax Audit Bureau, Office of Budget and Management Analysis, and Management Analysis and Project Services Bureau.

5. Local government mandates: This rule imposes no mandates upon any county, city, town, village, school district, fire district, or other special district.

6. Paperwork: The required schedule to account for the quantity of roll-your-own tobacco will result in minimal additional paperwork on the regulated parties as discussed in 4(b) above.

7. Duplication: There are no relevant rules or other legal requirements of the Federal or State governments that duplicate, overlap, or conflict with this rule.

8. Alternatives: The intention of the Department is to codify in regulation the requirement of proper reporting by distributors of tobacco products that import, cause to be imported, or manufacture roll-your-own tobacco to ensure compliance with the Public Health Law. No alternatives exist.

9. Federal standards: The rule does not exceed any minimum standards of the Federal government for the same or similar subject area.

10. Compliance schedule: The rule will take effect on the date that the Notice of Adoption is published in the State Register. The rule codifies in regulation the reporting requirement for distributors of tobacco products that import, cause to be imported, or manufacture roll-your-own cigarette tobacco to file, as part of the tobacco products tax return, a schedule to account for the quantity of such roll-your-own tobacco.

Regulatory Flexibility Analysis

1. Effect of rule: The rule will affect approximately 65 distributors of tobacco products that import or cause to be imported into New York State, or manufacture roll-your-own cigarette tobacco in New York State, some of which may be small businesses as defined in section 102(8) of the State Administrative Procedure Act. All distributors of tobacco products that import, cause to be imported, or manufacture roll-your-own cigarette tobacco, regardless of the size of the business operation, are currently required to file a supplemental schedule to account for roll-your-own cigarette tobacco. The rule codifies this requirement.

2. Compliance requirements: The rule does not impose any adverse economic impact or any additional reporting, recordkeeping, or compliance requirements on local governments. The rule codifies the requirement that all distributors of tobacco products that import, cause to be imported, or manufacture roll-your-own cigarette tobacco, including those that are small businesses, must complete and attach to their monthly tobacco products tax return a supplemental schedule to account for roll-your-own cigarette tobacco imported or cause to be imported into New York State, or manufactured in New York State. The information contained in this supplemental schedule is used by the Department of Taxation and Finance to fulfill its responsibilities under the Public Health Law to provide certain information necessary for the administration and enforcement of the Tobacco Escrow Funds Act.

3. Professional services: The rule itself imposes no requirements for professional services upon small businesses or local governments. However, an affected distributor of tobacco products may employ professional services in preparing its tax returns, including the supplemental schedule.

4. Compliance costs: There are no compliance costs to local governments as a result of this rule. With regard to the affected distributors of tobacco products, there are administrative costs associated with the filing of the supplemental schedule. This supplemental schedule is currently required by distributors of roll-your-own cigarette tobacco importing or causing to be imported into New York State, or manufacturing roll-your-own cigarette tobacco in New York State. The rule merely codifies this filing requirement. It is estimated that it takes an affected distributor of tobacco products that imports, causes to be imported, or manufactures roll-your-own cigarette tobacco thirty minutes to learn about the supplemental schedule, one hour for recordkeeping, and one hour and thirty minutes for preparing the supplemental schedule for a total of three hours. Assuming an hourly rate of $17 an hour (equivalent with a clerical New York State position), the average cost for an affected distributor of tobacco products to complete the supplemental schedule as part of their monthly tobacco products tax return is $51 a month. After the first filing, the costs of learning about the supplemental schedule could be reduced to zero for these distributors, resulting in compliance costs to each affected distributor of $42.50 a month for each subsequent month. There are no variations in these costs for small businesses.

5. Economic and technological feasibility: The rule does not impose any economic or technological compliance burdens on small businesses or local governments.

6. Minimizing adverse impact: As discussed in more detail in the Regulatory Impact Statement, the Public Health Law, as it relates to the enforcement of the tobacco Master Settlement Agreement (MSA), was amended by Chapter 272 of the Laws of 2006 to require that non-participating manufacturers, as defined in the MSA, include units of roll-your-own cigarette tobacco imported or caused to be imported into New York State, or manufactured in New York State in determining their annual escrow payments. In addition, the Tax Department is required to provide certain information to the New York State Attorney General (AG) necessary for the administration and enforcement of the Tobacco Escrow Funds Act. Accordingly, beginning with the return for January 2007, distributors importing, causing to be imported, or manufacturing roll-your-own cigarette are required to complete and attach a supplemental schedule to their monthly return to account for roll-your-own cigarette tobacco imported or caused to be imported into New York State, or manufactured in New York State. This rule codifies in regulation the additional reporting requirements needed to assist the AG's office with the enforcement of the Public Health Law. The rule does not distinguish between affected small businesses and other types of businesses as the information is necessary from all affected distributors. Recognizing the impact of the additional reporting requirements, the Department has taken the following steps to minimize any adverse effects. The rule mirrors 20 NYCRR 75.1(f), which requires similar reporting requirements for New York State cigarette excise tax stamps affixed to packages of cigarettes by the agent. In addition, in developing the supplemental schedule for distributors of tobacco products importing, causing to be imported, or manufacturing roll-your-own cigarette tobacco, the Department modeled such schedule after Form CG-5/6-ATT, which requests similar information from New York State cigarette stamping agents that affix New York State tax stamps.

7. Small business participation: The following organizations were notified that the Department was in the process of developing this rule and were given the opportunity to participate in the its development: the New York State Association of Tobacco and Candy Distributors; the Association of Towns of New York State; the Deputy Secretary of State for Local Government and Community Services; the Division of Small Business of Empire State Development; the National Federation of Independent Businesses; the New York State Association of Counties; the New York State Conference of Mayors and Municipal Officials; the Small Business Council of the New York State Business Council; and the Retail Council of New York State. The notified groups did not submit any comments concerning the rule.

Rural Area Flexibility Analysis

1. Types and estimated numbers of rural areas: The rule will affect approximately 65 distributors of tobacco products that import, cause to import, or manufacture roll-your-own cigarette tobacco, some of which may be located in rural areas as defined by section 102 (10) of the State Administrative Procedure Act. There are 44 counties in the State that are rural areas (having a population of less than 200,000) and 9 more counties having towns that are rural areas (with population densities of 150 or fewer people per square mile.) The rule affects all of these distributors of tobacco products in the same way; it does not distinguish between distributors of tobacco products that are located in rural, suburban, or metropolitan areas of the State. All distributors of tobacco products that import, cause to be imported, or manufacture roll-your-own cigarette tobacco, regardless of where they are located, are required to file a supplemental schedule to account for roll-your-own cigarette tobacco imported or caused to be imported into New York State, or manufactured in New York State.

2. Reporting, recordkeeping and other compliance requirements; and professional services: The rule codifies the requirement that all distributors of tobacco products that import, cause to be imported, or manufacture roll-your-own cigarette tobacco, including those located in rural areas, must complete and attach to their monthly tobacco products tax return a supplemental schedule to account for roll-your-own cigarette tobacco imported or caused to be imported into New York State, or manufactured in New York State. Although not required, an affected distributor of tobacco products may employ professional services in preparing its tax returns.

3. Costs: There are no variations in costs for public or private concerns in rural areas. With regard to the affected distributors of tobacco products located in rural areas or elsewhere, there are administrative costs associated with the filing of the supplemental schedule. This supplemental schedule is currently required to be filed by distributors importing or causing to be imported into New York State, or manufacturing roll-your-own cigarette tobacco in New York State. The rule merely codifies this filing requirement. It is estimated that it takes an affected distributor of tobacco products that imports, causes to be imported, or manufactures roll-your-own cigarette tobacco thirty minutes to learn about the supplemental schedule, one hour for recordkeeping, and one hour and thirty minutes for preparing the supplemental schedule for a total of three hours. Assuming an hourly rate of $17 an hour (equivalent with a clerical New York State position), the average cost for an affected distributor of tobacco products to complete the supplemental schedule as part of their monthly tobacco products tax return is $51 a month. After the first filing, the costs of learning about the supplemental schedule could be reduced to zero for these distributors, resulting in compliance costs to each affected distributor $42.50 a month for each subsequent month.

4. Minimizing adverse impact: The rule does not distinguish between affected distributors of roll-your-own cigarette tobacco located in rural areas and those located elsewhere as the information is required from all such distributors. As discussed in more detail in the Regulatory Impact Statement, the Public Health Law, as it relates to the enforcement of the tobacco Master Settlement Agreement (MSA), was amended by Chapter 272 of the Laws of 2006 to require that non-participating manufacturers, as defined in the MSA, include units of roll-your-own cigarette tobacco imported or caused to be imported into New York State, or manufactured in New York State in determining their annual escrow payments. In addition, the Tax Department is required to provide certain information to the New York State Attorney General (AG) necessary for the administration and enforcement of the Tobacco Escrow Funds Act. Accordingly, beginning with the return for January 2007, distributors importing, causing to be imported, or manufacturing roll-your-own cigarette tobacco are required to complete and attach a supplemental schedule to their monthly return to account for roll-your-own cigarette tobacco that is imported or caused to be imported into New York State, or manufactured in New York State. This rule codifies in regulation the additional reporting requirements needed to assist the AG's office with the enforcement of the Public Health Law. Recognizing the impact of the additional reporting requirements, the Department has taken the following steps to minimize any adverse effects. The rule mirrors 20 NYCRR 75.1(f), which requires similar reporting requirements for New York State cigarette excise tax stamps affixed to packages of cigarettes by an agent. In addition, in developing the supplemental schedule for distributors of tobacco products importing, causing to be imported, or manufacturing roll-your-own cigarette tobacco, the Department modeled such schedule after Form CG-5/6-ATT, which requests similar information from New York State cigarette stamping agents that affix New York State tax stamps.

5. Rural area participation: The following organizations were notified that the Department was in the process of developing this rule and were given the opportunity to participate in its development: the New York State Association of Tobacco and Candy Distributors; the Association of Towns of New York State; the Deputy Secretary of State for Local Government and Community Services; the Division of Small Business of Empire State Development; the National Federation of Independent Businesses; the New York State Association of Counties; the New York State Conference of Mayors and Municipal Officials; the Small Business Council of the New York State Business Council; and the Retail Council of New York State. The notified groups did not submit any comments concerning the rule.

Job Impact Statement

A Job Impact Statement is not being submitted with this rule because it is evident from the subject matter of the rule that it would have no adverse impact on jobs and employment opportunities. The purpose of this rule is to codify in regulation the reporting requirement for distributors of tobacco products that import, cause to be imported, or manufacture roll-your-own cigarette tobacco to file, as part of the tobacco products tax return, a schedule to account for the quantity of roll-your-own tobacco that is imported or caused to be imported into New York State, or manufactured in New York State. The filing of this additional supplemental schedule will not impact jobs or employment opportunities.